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Horwitz’s Answers

Many thanks to Steve for answering my questions. I’m honestly not trying to lay any kind of intellectual trap. I just find point blank questions to be one of the best ways to move a discussion forward.

Now for some follow-ups. Steve’s in blockquotes, I’m not.

1. What are some important, substantive economic claims that can be known a priori?

I am not sure whether Bryan will count these as “important, substantive economic claims,” but I think that we can know that humans act purposively, that they attempt to satisfy their most highly ranked ends first (which implies diminishing marginal utility), and the basic claims of downward sloping demand curves and upward sloping supply curves (which are implied by DMU). For me anyway, those are direct implications of, to use Mises’s phrase, “reflection about the essence of action.”

b. Diminishing marginal utility. Mainstream micro textbooks often have counterintuitive examples with increasing marginal utility. Are you really saying that the premise of these problems is somehow logically impossible? Or are you using a heterodox conception of marginal utility?

c. Downward-sloping demand and upward-sloping supply. What about income effects? Do you really think it’s logically impossible that workers would work more if there were a drastic fall in wages?

2. What are some important, substantive economic claims that can be logically derived from a priori knowledge plus a small number of uncontroversial empirical assumptions (e.g. the disutility of labor or the existence of money)?

Again, this is not something I’ve thought about extensively during my middle aged rejection of doing methodology, but one obvious example, given my prior answer, is the downward sloping labor demand curve. Another would be the basic quantity theory of money insight that price inflation results from an excess supply of money (though even there, some institutional assumptions might be relevant).

I’m really confused. You just named downward-sloping demand as a truth we know a priori. How then can downward-sloping demand for specific goods (labor, money) require additional (though uncontroversial) empirical assumptions?

3. Economists use multivariate statistics for a reason: to adjudicate between multiple competing hypotheses. Can you name an important, substantive empirical issue where Austrians have grappled with this conundrum? How convincing were the Austrians’ results?

One example I would point to in response to Bryan’s challenge would be Pete Boettke’s early work on War Communism…

Well this is hard to answer in the first person, as Bryan is asking for my opinion about what other Austrians don’t know or don’t appreciate. As a good Austrian, I don’t know everything that I don’t know, but I can speculate. I think the list of empirical conclusions that Austrians don’t know is probably pretty long and for at least two reasons. First, “substantive mainstream empirical conclusions” is a huge set, and I would guess most economists would only know a fraction of them if one reads that phrase broadly. Many of the younger Austrians are still deeply engaged in the narrower work that comes with the first years of a career and probably don’t read a lot beyond their specialty areas. Just like everyone else. But second, and more to the point, I think that Austrians historically have not engaged with mainstream literature as much as they might have. Again, I think this is improving but is still an issue.

I agree. But then I’m puzzled by the theme of your piece, which seems to be “why the mainstream should take Austrians more seriously,” not “why Austrians should take the mainstream more seriously.”

Perhaps you’re tempted to affirm both. But put yourself in the shoes of a mainstream economist. A heterodox economist shows up and admits that his school is unaware of major chunks of mainstream economics. Still, the heterodox economist is peeved that the mainstream isn’t giving his school’s critique of mainstream economics a fair hearing. Can you see why the mainstream economist might conclude that listening further is a waste of time?

The harsh reality: Heterodox economists can’t stick to “their specialty areas… [j]ust like everyone else” and expect to succeed. Mainstream economists don’t have to master heterodox economics to ignore it; heterodox economists do have to master mainstream economics to challenge it. To repeat my earlier point, Steve really should be pushing Austrians to improve themselves instead of complaining about mainstream apathy. Self-improvement might fail to win the mainstream over, but it’s far more effective than complaining.

Also from This Issue

Professor Horwitz makes the case that the Austrian school of economics isn’t just a bunch of armchair theorists. Ludwig von Mises’s “praxeology” should not prevent and has not prevented economists from doing vital, real-world, empirical work on subjects including monetary policy, disaster recovery, communist political economy, and even piracy. Horwitz takes us on a tour of some of this work and suggests that the Austrian school can offer mainstream economics a number of vital insights.

Bryan Caplan argues that the Austrian school remains in general much more hostile to empiricism than mainstream economics. Austrian subjectivism is well and good, but its neglect of behavioral economics then constitutes a puzzling shortcoming. And even in the work Horwitz praises, there is little that is distinctively “Austrian”—little that necessarily relies on the distinctive methodological or conceptual apparatus of the Austrian school.

George Selgin argues that part of the disagreement at hand is semantic: Where von Mises and other Austrians used the word “economics” to denote what we now call “theoretical economics,” we need not be bound by this convention, particularly not if it tends to obscure. That said, a real disagreement remains, because many in the Austrian school have failed to grasp that a deduced theorem of economics can still be “in the (common) sense”—that is, it may still have no explanatory power over events in the real world. When such cases arrive, Selgin finds that Austrians are all too often flummoxed.

Antony Davies expresses admiration for Austrian-school economics as a “complementary approach” to the problems he tries to solve using modeling and mathematics. He finds Austrians at their most incisive in their critique of modern macroeconomics, which is based not on individual behavior, but on an “accounting identity.” He argues that both quantitative and non-quantitative methods can reveal important truths, and he suggests that Austrians should deploy the former in refuting their opponents’ theories.

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